VAT and Indirect Taxes
VAT is easily overlooked, but, as a transaction based tax, it impacts everything a business does, and demands the requisite time and effort to manage. Designed as a simple tax, VAT in practice is increasingly complex with demanding compliance requirements.
Transactions, whether they be routine daily business purchases and sales, or larger one-off deals, need to be correctly treated for VAT. This is both to ensure compliance, but also to correctly manage a significant element of turnover (up to 20% in the UK, but higher elsewhere).
Overview
Ideally this tax needs to be addressed before the commencement of business to avoid errors and any costly corrective action. Our experienced advisers can assist, at all stages, with advice and practical solutions for the challenges you face.
If in doubt, don’t delay asking the question. Given its nature, this tax can generate a snow-ball effect and early identification leads to prompt resolution of issues, with savings in terms of VAT liabilities, penalties and management and advisory time.
How We Can Help
Our advisers have many years experience proactively advising businesses how to address VAT from the commencement of operations, as well as creatively resolving the inevitable issues that arise. We also provide assistance with compliance and can prepare and submit a variety of VAT, ESL (EC or EU Sales List) and Intrastat returns along with other VAT claims on your behalf.
Some of the main VAT issues and questions are outlined below:
- Compliance, claims and penalties
- Negotiating with HMRC
- Property issues
- Acquisitions and Disposals of Businesses and Non-Property Assets
- Cross-border EU and International trade
- Customs Duty & Excise Duties
- VAT Liability: What rate of VAT do I charge 0%, 5%, 20%?
- Exempt supplies, partial exemption calculations and VAT recovery
- Motor Vehicles, expenses and recovery
- VAT grouping, special accounting schemes etc
- Cash-flow, Bad Debts and Time to Pay
- Claiming overseas VAT and foreign companies claiming UK VAT
Compliance, claims and penalties
We can provide the following:
- Registering and Deregistering for VAT.
- VAT returns set up, preparation and submission (and help with electronic returns).
- Advice on the most appropriate registration set-up (eg VAT grouping, annual returns, special arrangements) as well as timing of registration.
- Assistance with claims for VAT from HMRC or other overseas VAT authorities.
We have considerable success defending against HMRC challenges, negotiating favourable outcomes with HMRC in advance and after the facts (including waiver of penalties) and managing VAT inspections, based on our technical expertise and approach with HMRC. We can assist with:
- Correcting past issues more favourably.
- Challenging HMRC’s position.
- Mitigating and suspending penalties.
- VAT Inspection preparation, support during visit and post-visit compliance.
High values and the complex VAT rules in this area can create significant issues. However, many favourable reliefs are available with potential savings of up to 75%-100% of the VAT on build costs. We have had notable success agreeing very favourable treatments on large, potentially contentious, projects through our knowledge of case law and application of HMRC’s internal procedures. We can advise on:
- Acquisitions and Disposals and resolving the property’s VAT status to ensure transactions complete in a timely manner.
- Contractual issues and potential exposures.
- Viability of proposed developments with respect to VAT costs.
- Construction, renovation and refurbishments – maximising reliefs to reduce VAT incurred and maximising VAT recovery, along with proposed changes (see “Budget” below).
- How future usage of the property will have an important impact on VAT recovery, and assistance with Capital Goods Scheme issues.
Acquisitions and Disposals of Businesses and Non-Property Assets
Large value assets attract large sums of VAT that demand increased attention. Errors in these situations can drastically undermine the viability of the transaction for the business. Our advice will help you:
- Transfer businesses and assets in the most VAT efficient manner.
- Understand VAT recovery potential and any Capital Goods Scheme issues.
Cross Border EU and International Trade
VAT is a truly international tax, which is particularly important in the EU where a single VAT law is supposed to apply across all member states. However, the different approaches in different member countries can lead to challenges. Many non-EU countries have VAT regimes of their own, with varying national-specific rules.
For both EU and non-EU trade, there are significant additional compliance requirements and conditions involved whether trading in goods or services. We have many years experience in advising on:
- Structuring business models and routes to market to maximise the various VAT reliefs.
- Ensuring the correct and robust application of zero-rating of sales to overseas customers.
- Identifying exposures in respect of compliance.
- Additional reporting requirements such as ESLs, Intrastats etc. We can also prepare and submit these on your behalf.
As part of the global TIAG Alliance we can provide international expertise overseas to address your local tax issues.
Customs Duty and Excise Duties
We understand that VAT is not the only transaction tax affecting international trade and can provide expert assistance on these duties.
VAT Liability: What rate of VAT do I charge 0%, 5%, 20%?
Applying the correct rate is a serious business. Getting it wrong can generate many issues with HMRC, whilst taking the time to get it right can often yield competitive advantages and profitable benefits. We can assist in identifying opportunities to zero-rate and reduce rate your products.
Sectors and activities typically affected include the following:
- Caravans
- Charity related activities
- Clothing
- Construction
- Energy Saving Equipment
- Food and Catering
- Gold
- International Trade
- Supplies designed for the handicapped and elderly
- Pharmaceutical
- Publishing
- Transport
We would be happy to discuss your business or activities with you to determine whether you can benefit from selling or buying at lower VAT rates.
Exempt supplies, partial exemption calculations and VAT recovery
Many organisations are affected by the consequences of making VAT-exempt supplies, whether these be integral to their business activities or any incidental supplies that arises from making limited exempt supplies, such as sub-leasing a property.
The restriction on input VAT recovery increases real costs and its careful management is both a compliance requisite and an opportunity to maximise VAT recovery. We can advise and assist with:
- Identifying exempt supplies, and any options available to avoid these.
- Calculating partial exemption recovery with a view to falling outside the scheme or maximising recovery.
- Negotiating favourable methodologies with HMRC to achieve the maximum possible recovery and reduce the administrative burden involved.
Motor Vehicles, expenses and recovery
Being a significant business cost, vehicle acquisition and running costs carry large VAT values. Specific rules affect VAT recovery depending on vehicle type, manner of acquisition and usage applied. Considering VAT prior to acquisition is highly recommended to ensure maximum VAT recovery is achieved.
We can advise on:
- Suitable methods of acquisition and disposal.
- VAT recovery on fuel, running costs, repairs and servicing etc.
VAT grouping, special accounting schemes etc
The UK has unusually generous VAT grouping rules within the EU and these offer significant advantages both in terms of VAT cash flow and sometimes absolute VAT costs. If you operate more than one legal entity it is advisable to consider the benefits available.
We can advise on when VAT grouping would be appropriate, how it would work in your favour and when it the hidden risks may render it inappropriate for you. We can advise on and assist with
- VAT Group registration applications.
- Applications to alter groups.
- Reporting requirements.
Cash-flow, Bad Debts and Time to Pay
We are keenly aware of how VAT interacts with current market challenges and can offer a number of proactive solutions to improve cash-flow management. At 20% of turnover, VAT is a significant cash-flow item and we have had notable success negotiating favourable time to pay arrangements with HMRC. We can provide advice and support on:
- Structuring to maximise VAT cash-flow benefits.
- Preventing VAT bad debts from arising.
- Managing and claiming bad debts.
- Negotiating time to pay arrangements with HMRC should cash-flow become constrained.
Claiming overseas VAT and foreign companies claiming UK VAT
Many overseas costs will carry VAT whether you are a UK business with interests abroad, or foreign businesses operating in the UK As these claims effectively pay for themselves, we recommend that these not be overlooked. Typically time limits of one year apply, so these need to be regularly reviewed.
- We can assist in advising on making claims.
- Setting up procedures to maximise recovery.
- Preparing and submitting claims and negotiating with tax authorities to facilitate success.
